California on the Rebound

California, the nation’s largest milk producing state, is beginning its slow recovery from the dairy depression that gripped the country in 2009.

"We’re cash flowing on a current basis, but we still have a mountain debt left over from 2009," says Rob Vandenheuvel, general manager of California’s Milk Producer Council (MPC).

Lower feed costs and higher butter and milk powder prices are the reason. Corn prices are running $200/ton, 50% less than in early to mid 2013, he says. Forage and hay supplies, however, remain tight due to high demand, lower supply and export hay sales to China.

But milk prices have finally rebounded, thanks in part to strong exports. California over-base milk now hovers around $19/cwt, and is actually higher than nearby competitors. For the past several years, California milk prices had lagged the competition by $1 to $1.50/cwt. Coupled with high feed prices fueled by $6 and $7/bu corn, cash flows bled red profusely.

It’s difficult to know exactly how many California dairies exited the business in 2013. Anecdotal reports put the number at somewhere between 100 and 150 dairies, which if true, could represent upwards of 10% of the state’s 1,500 dairy farms.

Three of California’s large dairy co-ops—California Dairies, Inc., Dairy Farmers of America and Land O’Lakes—are preparing a petition for state producers to join the Federal Milk Marketing Order system. California has operated separate from the Federal Orders, relying on its own state order administered by the California Department of Food and Agriculture (CDFA).

But that reliance has left producers uncompetitive with the rest of the country. "Producers here are tired of battling with CDFA for higher prices," says Vandenheuvel. "We’ve tried hearings, legislation and lawsuits. Nothing worked."

This winter, for the first time in years, California dairy farmers are feeling optimism. "We’re on the verge of a farm bill that might offer something for larger dairy farms. We’re on the verge of getting a Federal Order in 16 months or so that would level the playing field. And our large co-ops are all positioning themselves to take advantage of export markets," says Vandenheuvel.

"For the first time in years, hope is in the air that we might be getting close to recovery and a turn-around for our state," he says.